The Supreme Court of India has reaffirmed that when the language of a deed or contract is clear and unambiguous, courts must interpret it in its plain and ordinary meaning without judicial interference. This ruling came in a significant judgment delivered by Justices Pankaj Mithal and SVN Bhatti on April 8, 2025, in the case Annaya Kocha Shetty (Dead) through LRs v. Laxmibai Narayan Satose since deceased through LRs & Others.
“The court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly. If the words are clear, there is very little the court can do about it.” — Supreme Court quoting from Provash Chandra Dalui v. Biswanath Banerjee, (1989) Supp 1 SCC 487
Background of the Case
The dispute centered around an agreement dated August 16, 1967, titled a "conducting agreement" for a hotel business. The plaintiff claimed that he was a deemed tenant under Section 15A of the Bombay Rent Act, 1947, arguing that the agreement effectively gave him tenancy or license rights over the hotel premises, and thus protection from eviction.
Initially, the Trial Court ruled in favor of the plaintiff, recognizing the agreement as a leave and license arrangement. However, the Appellate Court reversed this decision, holding it to be an agreement purely for conducting a business and not for tenancy. This view was upheld by the High Court, leading the plaintiff to appeal before the Supreme Court.
The Supreme Court carefully analyzed the terms of the agreement and held that the words used were clear, indicating that the arrangement was meant only for the operation of the hotel business and not for transferring possession or tenancy rights.
The Court laid down three guiding rules for interpreting deeds and contracts:
Literal Rule: If the language is clear, the contract must be read in its plain and ordinary sense.
Golden Rule: If a literal interpretation leads to absurdity, a shift may be made to avoid such outcomes.
Purposive Rule: Contracts can be interpreted in light of their purpose, but this must be done cautiously.
“The agreement is one for conducting the business of the first defendant. We are excluding oral evidence from consideration as none of the exceptions is attracted.” — Supreme Court
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- The Court emphasized that oral evidence cannot be introduced to vary the terms of a written agreement under Sections 91 and 92 of the Indian Evidence Act, 1872, unless it falls under specific exceptions like fraud or mistake.
- The conducting agreement made no mention of transferring possession to the plaintiff, which is essential for establishing a tenancy.
- The payment termed as 'royalty', not 'rent', further confirmed that the plaintiff was running the hotel business under the owner's ownership, not as a tenant.
“The absence of a clause transferring possession is a vital circumstance in construing the agreement. The plaintiff was entrusted to run the business, not to occupy the premises.” — Supreme Court
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The Court examined various clauses of the 1967 agreement and found:
- The plaintiff was designated as ‘conductor’, and the first defendant as ‘owner’.
- The plaintiff was given rights to run the hotel business, use the furniture and fittings, and pay monthly royalty.
- The agreement restricted the plaintiff from transferring rights to any third party and obligated him to manage workers and pay taxes.
- Crucially, no possession rights over the property were transferred to the plaintiff.
“Clause I shows it was an agreement to conduct business, not to take possession. The term ‘royalty’ and not ‘rent’ supports this conclusion.” — Supreme Court
The Civil Appeal was dismissed with costs of ₹1,00,000 awarded to the first defendant. The Court emphasized that clarity in drafting and brevity in pleadings are essential to avoid unnecessary litigation.
